Golden Agri-Resources Ltd. (GGR), the palm oil producer with enough plantations to almost cover the Grand Canyon, is ripe for a buyout by its largest shareholder as the stock languishes 36 percent below the value of its net assets.

Tumbling palm oil prices left the world’s second-largest producer of the cooking ingredient trading at 0.64 times its book value. That’s near the lowest level since 2009 and cheaper than 97 percent of agriculture products companies, according to data compiled by Bloomberg yesterday. Indonesia’s Widjaja family, whose $8.6 billion estimated fortune includes ownership of almost half of Golden Agri, could pay a 50 percent premium for the rest of the stock and still land a bargain, said CMC Markets Singapore Pte.

While palm oil fell 34 percent in the year through last week amid record stockpiles, prices are set to recover as the pace of output slows in Indonesia, the world’s largest producer, said RHB Investment Bank Bhd. Singapore-based Golden Agri, with a S$6.9 billion ($5.6 billion) market value, is projected to rebound to a new revenue high next year, analysts’ estimates compiled by Bloomberg show.

“You could easily foresee an attempt to take the company private,” said Jason Hughes, Singapore-based head of sales trading at CMC Markets. “If we are currently coming out of a low point for global demand, then the true future earnings of these large conglomerates may not be priced in to the current valuations at all.”

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Founding Family

Franky Oesman Widjaja, chairman and chief executive officer of Golden Agri, didn’t respond to a request for comment left at his office. A representative for Golden Agri declined in an e- mail to comment on any possible buyout.

The company was founded in 1996 by the family of Indonesia’s richest man, Eka Tjipta Widjaja, now 89, who built his fortune after arriving in Indonesia from China at the age of 7 and selling biscuits as a teenager, according to the Bloomberg Billionaires Index. The family bought more Golden Agri shares last month and their stake in the company is the most valuable of all their assets, which also include interests in pulp and real estate, according to the index.

Golden Agri’s 1.1 million acres (463,400 hectares) of Indonesian plantations could carpet almost all of Arizona’s Grand Canyon National Park. In addition to cooking oil and margarine, Golden Agri last year produced 2.4 million tons of crude palm oil, about 4.5 percent of global output, according to its 2012 annual report.

Bottoming Out?

The price of the world’s most-used cooking oil declined in the past year as reserves in Malaysia reached a record. Stockpiles in the country, the second-largest producer behind Indonesia, have since shrunk, touching a seven-month low of 2.17 million metric tons in March, according to the Malaysian Palm Oil Board. Prices will gain about 25 percent to 2,810 ringgit ($943) a metric ton between now and 2015, according to analysts’ forecasts compiled by Bloomberg.

“We are at the bottom of the cycle both for crude palm oil prices and for stock prices,” Muzhafar Mukhtar, an analyst at Nomura Holdings Inc. in Malaysia, said by phone. A privatization of Golden Agri “makes sense from a valuation standpoint.”

Golden Agri’s revenue, set to fall this year for the first time since 2009, will climb 12 percent in 2014 to a record $6.49 billion, according to the average of 17 analyst estimates compiled by Bloomberg. Net income in 2014 will gain 12 percent to $528 million, the data show.

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The almost 30 percent tumble by Golden Agri stock in the past year to as low as 52 Singapore cents on May 2 left the company at its lowest valuation relative to net assets since July 2009, according to data compiled by Bloomberg. At last week’s closing price of 53 Singapore cents, Golden Agri was cheaper than all but two of 60 peers worldwide with a market value of more than $500 million, the data show.

Golden Agri was the fourth most-shorted stock among the 30 members of Singapore’s benchmark Straits Times Index at the end of April, according to data compiled by Markit and Bloomberg. Short interest, as a percentage of shares held by investors willing and able to trade, was 6.2 percent, the data show.

Widjaja Purchases

“Substantial shareholders and business managers may feel they can get a better return on their investment by no longer holding a listed company,” Hughes at CMC Markets said in an e- mail. “They can potentially pick up a bargain in the process.”

The Widjaja Family Master Trust, through Jesslyne Widjaja, the daughter of Golden Agri CEO Franky, acquired 250,000 more shares of Golden Agri on April 22 for S$138,500, or about 55 cents a share, keeping the family’s stake at 49.95 percent, filings show.

Spending Plans

Gold Agri, which had $669 million of cash and equivalents at the end of 2012, plans to spend about $550 million this year to help expand plantations and refining capacity.

With palm oil prices set to rise, the chance to take full control of Golden Agri and run it without having to answer to public shareholders may tempt the Widjaja family, according to Kelly Teoh, a market strategist at IG Asia Pte in Singapore.

The Widjajas are infamous for getting the best end of the deal in any financial transaction, even sticking it to the finance professionals who are supposed to be the ‘masters of the universe’ at ripping off their clients’ interests – the investment bankers themselves.

… APP defaulted on its bank loans and bonds. The default triggered what has become one of the biggest investment debacles in the history of modern Corporate Asia. “It could be considered the worst of the largest [defaults],” says Mark Mobius, director of Templeton Asset Management in Singapore, “because it involves so many people and so many different kinds of assets.” While Rothschild bailed out before the collapse, hundreds of other institutional investors and creditors didn’t. They now hold paper worth pennies on the dollar.

As the creditors, auditors, and lawyers pick through the wreckage, disturbing questions emerge. Here was a company that won the confidence of investors by securing the imprimatur of the world’s leading financial firms, including Merrill Lynch, J.P. Morgan, Morgan Stanley, CSFB, and Goldman Sachs, which collectively underwrote billions in APP bonds and equities. Arthur Andersen, the parent company’s auditors since 1994, signed off on its books. APP securities passed muster with regulators in Singapore and Washington. Yet it turns out nobody outside APP really had the full picture of the company’s finances, which included a bewildering variety of debt offerings issued by offshore subsidiaries. Nor did Westerners ever penetrate what was, at heart, a traditional ethnic Chinese family company.

J.P. Morgan, CSFB, Merrill Lynch, Goldman Sachs, and Arthur Andersen all declined to comment for this story. In the end, it will be very difficult to trace the money the banks raised for APP in the six years since its creation. What is known about the cost of APP’s mills, its interest payments, and its reported bank deposits leaves some $3 billion to $4 billion unaccounted for, according to several financial analysts who have crunched the data. APP also lost money in derivatives investments and real estate in the region. There are three audits underway now, but the company has yet to give a full accounting.

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At the center of this drama are the Widjajas. Eka Tjipta Widjaja, the 77-year-old Chinese-born patriarch, started out selling dried meat and tea to Indonesian soldiers fighting against Dutch colonial troops in the 1940s. He went into the pulp and paper business in the 1970s, helped by government subsidies for the forest plantations he acquired under former President Suharto. APP is part of the Widjajas’ Sinar Mas Group, which also has vast holdings in banking, real estate, and food processing.

Godfathers are not godfathers if their reach does not extend to the (home) Courts. This one’s does.

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I remember being enthralled by all the twists and turns in the APP bond scandal when it broke more than ten years ago. Father especially followed and talked about it constantly, adding in details he learnt and exchanged (gossiped?) with his business peers from the regional commodities industry. That’s when he impressed repeatedly upon me that when going into business with the Asian Godfathers (whether they be from Indon, Msia, Spore, Thai, HK) or investing in their publicly-listed securities or even just in their bond instruments, there is ALWAYS going to be a catch, they are always going to stick one to you.

At the same time, since many of the godfathers are operating essentially rent-seeking businesses courtesy of their political goodwill and largess, you can also make a many-fold return investing along with them, provided it is the right vehicle and right timing. Just go along for the ride.

Guess this was the rationale behind the inclusion of this stock in the passive portfolio. And probably also some nostalgia he felt for his old industry and original family business, that fruity and crusty old oil palm. I just wished he had 见好就收-quit while he was ahead.

I hate having to deal with legacy positions in the long-term passive portfolio. Will have to go ferret out and go through the company’s debt and capital structure now. Seems like the large cash and cash equivalents stockpile the company had accumulated is proving to be too tempting for the Godfather to pass up to use in a leveraged-buy-out grab for the rest of the company…

Sigh, thought my fundamental/company analysis days were supposed to be behind me. Bleah.